Broker snap: Sales growth expected at JD Wetherspoon

5th Oct 2010 12:39

Charles Stanley Securities expects sales growth at JD Wetherspoon as the group confidently moved from cash conservation into estate development. Analyst James Dawson antipates this increase through new site add-ons, although higher repairs are now deemed necessary to freshen-up the mature sites.The continually growing pub estate offers drinks producers a significant degree of reach in terms of geographic exposure. While the group does not wield ultimate power over the brewers, it is apparent that JDW's estate remains a strong route to market for their products.JDW continues to assert its high street core competence and with uncertainty among other similarly located brands, the group should capitalise further in the short term. Mitchells & Butlers' exit of 373 pubs demonstrates the transition that is underway among other estates, however there are likely to be near term performance implications for those involved in the consolidation process.Dawson comments that "despite a healthy like-for-like sales growth start to fiscal year 2011 we expect the group to finish with a more muted figure as the January 2011 VAT increase impacts." Forecasts for fiscal years 2011 and 2012 assume virtually no like-for-like sales growth. "That said, the new site pipeline appears strong with 50 sites per year targeted, although JDW may experience greater interest in the sites it bids for.""The group stands on a current year 2011 enterprise value/earnings before interest, taxes and rent multiple of 9.6x, an unwarranted 13% discount to the UK pub sector given operational strength of this business." The broker has upgraded to 'add' from 'hold' and reiterated the price target of 510p.